Zita v. Court of Tax Appeals

TWELFTH DIVISION [CA-G.R. SP No. 41478. June 19, 1997.] LEONARDO ZITA , petitioner , vs . COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE , respondents . D E C I S I O N TUQUERO , J p : Petitioner Leonardo Zita seeks a review and the reversal of the decision of respondent Court dismissing his petition for review docketed as C.T.A. Case No. 5171, in which he prays for judgment as follows: a. declaring the letter-decision dated September 16, 1994 signed by Commr. Chato as null and void for being contrary to law; b. reinstating the Memorandum dated Dec. 7, 1993 of OCIR to the Chief of Law Division; c. enjoining the BIR to revive tax cases of the 21 other animal feed meal importers with the end in view of collecting their respective deficiency advance sales taxes. (p. 38, Rollo) The antecedent facts are accurately summarized in the Comment submitted by the Office of the Solicitor General, as follows: Petitioner is the informer who submitted to the Bureau of Internal Revenue (BIR) Confidential Information No. 1772 denouncing the tax evasion practices of 22 animal feed meal importers, as said taxpayers paid advance sales tax for the years 1980 to 1983 at the rate of five (5%) percent instead of ten (10%) percent which petitioner believed was prescribed under Section 199, in relation to Section 193 (B) of the Old Revenue Code. Petitioner's denunciation was sustained by BIR and the twenty-two (22) importers were individually assessed for deficiency advance sales tax for the years 1980 to 1983 in the total amount of P11,250,614.98 (Annex "C", Petition). One of the importers, Simon Enterprises, Inc., protested the assessment. In a Memorandum dated December 8, 1986 of Atty. Alicia P. Clemeno, Chief, Law Division of the BIR, which was approved by the then Commissioner of Internal Revenue Bienvenido A. Tan, Jr., deficiency assessment was cancelled, thus: "In view of the foregoing, it is respectfully recommended that our assessment against Simon Enterprises, Inc. for payment of deficiency advance sales tax for the years 1980, 1981, 1982 and 1983 be cancelled and this case considered closed." (Annex "D", Petition) A copy of the above Memorandum was received by petitioner on May 18, 1993. On June 9, 1993, petitioner sought the reconsideration of the Memorandum cancelling the deficiency assessment on Simon Enterprises, Inc. (Annex "F", Petition). On June 27, 1994, the Bureau of Legal Services, BIR, reinstated the deficiency advance sales tax of Simon Enterprises, Inc. in the amount of P736,667.00. On March 3, 1994, Simon Enterprises, Inc., through its counsel, replied to the BIR that the period within which the deficiency advance sales tax assessed against it may be collected had prescribed. cdt On September 16, 1994, Commissioner Liwayway Vinzons-Chato, through a letter, cancelled the deficiency advance sales tax assessment on Simon Enterprises, Inc., in the amount of P736,667.00, as well as on the other twenty-one (21) animal feed meal importers (Annex "A" and Annex "B", Petition). The dispositive portion of that letter reads: "In view of the foregoing, the Memorandum of this Office dated December 7, 1993 to the Chief, Legislative Ruling & Research Division (now Law Division) to enforce the collection of the amount of P736,667.00 due from Simon Enterprises, Inc. as deficiency advance sales tax, inclusive of increment, for the years 1980 to 1983, is hereby declared to be without force and effect. The aforesaid case, as well as those of the 21 other animal feed meal importers similarly situated, is hereby cancelled in line with the Memorandum-decision dated December 8, 1986 of the Law Division duly approved by my predecessor. This constitutes our final decision on the matter." On November 10, 1994, petitioner appealed the Letter-Decision of Commissioner Vinzons-Chato to the Court of Tax Appeals (Annex "B", Petition). On July 11, 1996, the Court of Tax Appeals dismissed petitioner's appeal (Annex "A", Petition). Hence, this Petition. (pp. 106-109, Rollo) In assailing the dismissal of his petition, petitioner contends, first, that the disputed decision of respondent BIR Commissioner was tainted with grave abuse of discretion and is, therefore, judicially reviewable; second, that the decision to cancel and/or withdraw the deficiency taxes in question was without legal and valid basis; and third, that the right of the government to collect the deficiency taxes in question has not yet prescribed. Petitioner's contentions are unmeritorious. As correctly pointed out by respondent Court in justifying the dismissal of petitioner's petition for review When the Commissioner of Internal Revenue decided with finality the issue of whether or not to withdraw deficiency taxes to Simon Enterprises, Inc. and twenty-one other importers, the same was made in accordance with her authority under the law. The Commissioner of Internal Revenue has the discretionary power to act or not to act upon the information made by the petitioner. That is a privilege of respondent to decide and act in accordance with what is fair and equitable under the peculiar circumstances of the particular case guided by the spirit and the principles of the law, and the exercise is reviewable only for an abuse thereof, (see Manekos vs. Allied Discount Co., 6 Misc. 2 d, 1079, 166 N.V.S. 2d 366, 369). And this is manifested by the fact that when the Commissioner approved the recommendation of the Law Division, it was based on BIR Ruling Nos. 238-81, 010-83 and 050-85, wherein it was ruled that the importation of meat and animal bone meal, fish meal, etc., to be sold directly to poultry, swine and cattle raisers, are subject to the 5% advance sales tax under then Section 201 (f) in relation to Section 193 (b) (now both repealed) of the Tax Code, as amended by Executive Order No. 883. (pp. 19-20. Rollo) It must be stressed that the deficiency taxes in question cover importations of meat and bone meals, fish meal, skimmed milk, etc., made in 1980, 1981, 1982 and 1983. Pertinent BIR rulings at that time are to the effect that if the imported articles are used in the manufacture of poultry, swine and cattle feeds, the same are subject to the advance sales tax of 10% based on the landed cost thereof, plus 25% mark-up pursuant to Section 199(a) in relation to Section 193(b) of the Tax Code (BIR Rulings Nos. 079-80, 153-82, 065-83 and 069-83) and that where said importations are to be sold "as is" direct to poultry, swine and cattle raisers, the same are subject to 5% advance sales tax based on the landed cost thereof under then Section 201(f) in relation to Section 193(b) of the Tax Code (BIR Rulings Nos. 328-81, 010-83 and 050-85). Simon Enterprises, Inc., and 21 other animal feed meal importers paid 5% advance sales taxes on the strength of said BIR rulings. cdta It is true that the above rulings were later revoked by BIR Ruling No. 086-85 which states that imported animal ingredients, regardless of whether they are sold directly to poultry, swine and cattle raisers , are subject to 10% advance sales tax, and that the articles mentioned in Section 201(f) of the Tax Code as subject to a lower rate of tax of 5% should be construed to mean finished articles, imported or locally produced which can be used for direct feeding to the fowl, swine and cattle without any mixture with other ingredients. However this subsequent ruling cannot be made to apply to importations made prior thereto, which on the basis of BIR Rulings then in force, were subjected to the payment of 5% advance sales tax. On non-retroactivity of BIR rulings, Section 278 of the Tax Code provides as follows: Sec. 278. Non-retroactivity of rulings . Any revocation, modification, or reversal of . . . or any of the rulings of circulars promulgated by the Commissioner shall not be given retroactive application if the revocation modification, or reversal will be prejudicial to the taxpayer except in the following cases (a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; (b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or (c) where the taxpayer acted on bad faith. Undoubtedly, BIR Ruling No. 086-85 is prejudicial to the taxpayer. Petitioner has not shown that the importers concerned had deliberately misstated or omitted material facts in their returns, or had acted in bad faith. Hence, a retroactive application of said ruling is prescribed under Section 278 of the Tax Code. cd Needless to state, the right to collect the deficiency taxes in question has already prescribed. Revenue taxes shall be assessed within three (3) years after the return was filed, and no proceedings in court without assessment for collection of such taxes shall commence after the expiration of such period. The import entry, from which the advance sales tax is determined, serves as the tax return. There is no showing of any falsity, fraud or omission in said entry to warrant the application of Section 223 of the Tax Code, which provides for a period of ten (10) years from discovery of said falsity, fraud or omission for the assessment of tax or institution of proceeding in court for the collection thereof. The payment of 5% advance sales tax by the concerned importers was based on their representations, which have not been shown to be false, that the imported articles were sold "as is" and directly to the poultry, swine and cattle raisers. WHEREFORE, the petition for review is hereby DENIED and the appealed decision is accordingly AFFIRMED. SO ORDERED. Luna and Hofilena, JJ . , concur.